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Stock-based compensation and equity transactions
 9 Months Ended
Jul. 31, 2012
Stock-based compensation and equity transactions

Note 6 - Stock-based compensation and equity transactions

  

The stock incentive plans provide for the granting of qualified and nonqualified options to the Company’s officers, directors and employees. Non-qualified stock options granted during the nine months ended July 31, 2012 vest and are exercisable immediately with an expiration of five years from date of grant. The Company granted a total of 27,000 non-qualified stock options to its directors, 50,000 incentive stock options to the VP of Marketing, and 1,500 incentive stock options to an employee for a total of 78,500 options issued during the nine months ended July 31, 2012. The Company satisfies the exercise of options by issuing previously unissued common shares.  

 

The weighted average fair value of employee stock options granted by the Company in the nine months ended July 31, 2012 and 2011 was estimated to be $1.23 and $1.08 per share, respectively, using the Black-Scholes option pricing model with the following assumptions:

  

    2012     2011  
Risk-free interest rate     0.41 %     0.68 %
Dividend yield     4.2 %     2.7 %
Expected life of the option     3.9  years       3.5  years  
Volatility factor     62.79 %     51.68 %

 

Expected volatilities are based on historical volatility of the Company’s stock and other factors. The Company used the expected term method to calculate the expected life of the 2012 option grants. The expected life represents the period of time that options granted are expected to be outstanding. The risk-free rate is based on the U.S. Treasury rate with a maturity date corresponding to the options’ expected life. The dividend yield is based upon the historical dividend yield. 

 

Issuances of common stock by the Company

 

During the nine months ended July 31, 2012, the Company issued 103,788 shares of common stock and received net proceeds of $141,340 in connection with the exercise of employee stock options.

 

Company Stock Option Plans

 

Descriptions of the Company’s stock option plans are included in Note 7 of the Company’s Annual Report on Form 10-K for the year ended October 31, 2011. A summary of the status of the options granted under the Company’s stock option plans as of July 31, 2012 and the changes in options outstanding during the nine months then ended is presented in the table that follows:

 

    Shares     Weighted
Average
Exercise Price		  
Outstanding at November 1, 2011     2,099,672     $ 2.13  
Options granted     78,500     $ 3.74  
Options exercised     (103,788 )   $ 1.36  
Options canceled or expired     (8,000 )   $ 3.22  
Options outstanding at July 31, 2012     2,066,384     $ 2.22  
Options exercisable at July 31, 2012     1,544,140     $ 2.06  
Options vested and expected to vest at July 31, 2012     3,397,716     $ 2.06  

 

Weighted average remaining contractual life of options outstanding as of July 31, 2012: 3.86 years

 

Weighted average remaining contractual life of options exercisable as of July 31, 2012: 3.61 years

 

Weighted average remaining contractual life of options vested and expected to vest as of July 31, 2012: 3.61 years

 

Aggregate intrinsic value of options outstanding at July 31, 2012: $3,825,552

 

Aggregate intrinsic value of options exercisable at July 31, 2012: $3,108,978

 

Aggregate intrinsic value of options vested and expected to vest at July 31, 2012: $8,242,985

 

  

As of July 31, 2012, $372,301 of expense with respect to non-vested stock-based arrangements has yet to be recognized and is expected to be recognized over a weighted average period of 3.73 years.

 

Stock Option Expense

 

During the nine-months ended July 31, 2012 and 2011, stock-based compensation expense totaled $163,804 and $165,368, respectively. For the three-months ended July 31, 2012 and July 31, 2011, stock-based compensation expense totaled $43,413 and $23,000, respectively. For the nine months ended July 31, 2012 and 2011, stock-based compensation classified in cost of sales amounted to $41,627 and $30,547 and stock-based compensation classified in selling and general expense amounted to $122,177 and $134,821, respectively.